Setting Boundaries When Friends and Family Invest in Your Business

We’ve all heard the popular phrase ‘don’t mix business with pleasure.’ The same concept can sometimes be applied to situations where an entrepreneur seeks start-up funding from friends and family—or anyone within a close personal network. It’s easlend-money-friends-800x800y to make an ‘ask’ for funding to a close friend or family member, rather than pitching to strangers at a venture capital firm or several of your local banks. However, it is important to keep certain ‘ground rules’ in mind if you do decide to borrow money from (or lend to) a friend or family member. This will help to ensure that in the future there is no argument or disagreement about the terms of the loan.

There are many articles and books that broach the subject of lending/borrowing investment and start-up capital from friends and family. Recent articles from, and the online Wall Street Journal discuss ways to approach the ‘ask’ and ways to evaluate whether or not the investment would be a worthwhile opportunity.

Things to consider before asking to borrow from friends & family

If you decide that you’re going to ask a friend or family member to loan you money for your business or start-up, remember to tackle the following issues prior to the ‘ask’ to be better prepared:

  • Create a solid business plan: Identify the market and competition, important financial aspects, and show the projection of anticipated growth
  • Put the terms of the deal in writing: Having a legal document clearly outlining all terms of the agreement will be useful if one person is delaying on payment or the other is asking for something that was not initially agreed upon
  • Set clear repayment terms: Be sure to define your rate of interest and when/how frequent payment will be; your investor, albeit a friend or family member, wants to know when you plan to start paying him/her back—set goals and stick with them

Things to consider before lending to friends & family

As much as you may want to help a friend or family member who approaches you for start-up or business funds, the following are some things you should consider before saying ‘yes’:

  • Discuss other options: Perhaps there is a way you can assist the venture that doesn’t involve finances, such as being on the board of advisors or assisting in the marketing plan
  • Have clear expectations: Create a loan schedule and discuss ‘next steps’ if a missed payment were to happen; make sure the individual knows that this is a loan and not a gift
  • Put it in writing: As noted when considering borrowing money from a personal contact, it’s important to also ask for terms in writing if you’re on the lending end of the agreement to avoid any confusion in the future during the repayment process

Would you consider letting friends and/or family invest in your business or loan you start-up capital? What terms would you set? If you have loaned to others, what are some questions you asked before investing?

To read more about some of the issues involved with borrowing from or lending start-up money to friends and family, please visit the following:

Thanks for reading, and until next time… stay WISE!

This entry was posted in bootstrapping, business, business finances, entrepreneurship, Leadership, Risks, start-up ventures, women in business and tagged , , , , , , , , , . Bookmark the permalink.

11 Responses to Setting Boundaries When Friends and Family Invest in Your Business

  1. Anyhow, I am blown away by your idea right here, I’ll definitely register for your RSS feed! It’s
    much appreciated!

  2. Derek says:

    You’ve got, some valid tips! I truly appreciate you creating this kind of brief article available, the rest of the website is also done well. Have a great time. Much appreciated info!

  3. Franziska says:

    I know this if off topic but I’m looking into starting my own blog and was curious what all is needed to get set up? I’m assuming having a
    blog like yours would cost a pretty penny? I’m not very internet savvy so I’m not 100% sure.

    Any tips or advice would be greatly appreciated. Many thanks!

    • wisesyracuse says:

      Hi Franziska: It’s easy (and free) to start a blog! You can create a blog–at no charge–through site like WordPress. For this particular blog, I choose settings that each time I post a new article, it automatically links to our website and social media pages, which also helps to generate additional readers. Once you decide on a topic to write about, you can write and/or summarize interesting articles that you read. Hope this helps… and thank you for reading!

  4. Please, can you PM me as well as explain to me several more things concerning
    this topic, because I’m already a fan of your blog. Appreciate it!

  5. publicize says:

    Excellent site you have here but I was wondering if you knew of any forums that cover the same topics discussed here?
    I’d really like to be a part of online community where I can get feedback from other experienced people that share the same interest. If you have any recommendations, please let me know. Kudos!

    • wisesyracuse says:

      Greetings, and thanks for reading! I decided to write about this topic, as it interested me greatly. I originally found articles relating to this topic on and, both sites of which have great content about all-things-entrepreneurship. If you search for articles on sites like these, there are options to post comments and some have a thread of conversation about the topic that has already started. A quick Google search can sometimes turn up new sites that specialize in certain business topics as well. I hope this helps! Keep entrepreneur-ing!

  6. Doyle says:

    Outstanding post however I was wondering if you could write a litte more on this subject?
    I’d be very thankful if you could elaborate a little bit more. Regards!

  7. This is certainly really fine!! Thanks a ton and also continue this good creative work!

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s